Buzzworthy Benefits of ‘Reshoring’ Companies – Forbes

by admin on April 4, 2012

For years, American companies looking to reduce costs have found savings by looking overseas.

Even those that lamented offshoring’s effect on domestic employment couldn’t deny its balance-sheet appeal. Once the offshoring trend hit critical mass, anyone who didn’t join in was at a huge disadvantage: If all your competitors have moved their call centers to India, how could you afford not to?

But is offshoring always the best choice? A growing movement is questioning the knee-jerk assumption that sending manufacturing and service jobs overseas is the only way to stay competitive. One reason is that the costs of offshoring are rising: fuel prices are up (making shipping more expensive) and workers in developing countries are demanding steadily higher wages.

Proponents of reshoring, as it’s called, say that factors other than price should also be taken into account. For Simple Wave, a California housewares company, bringing manufacturing to the U.S. from China had numerous benefits: It made the company more agile in adapting to customer needs; it allowed for better quality control; and it brought a huge amount of positive publicity within its industry.

Just as importantly, it gave employees a sense of pride. “We wanted to do the right thing, and it felt good to make that decision,” says co-founder Richard Stump.

Simple Wave’s signature product is the CaliBowl, a bowl with an inward-curving lip that prevents food from spilling out. When the company was founded in 2008, the decision was made early on to manufacture the rubber bowls in China. “We went to China because that’s what everyone else did,” says Stump. “It was monkey see, monkey do.”

But producing a precisely designed product far from the company’s home base turned out to be harder than the founders expected. The curved lip of the bowls was difficult to mold, and quality control became a concern. There were worries about lead times and inventory. When a chocolate company requested 800 CaliBowls on short notice for its store displays, it became clear that it was time to move toward a just-in-time delivery model. “We needed to be able to adapt more quickly,” says Stump. “You lose a lot of opportunities if you can’t deliver.”

Customer demand was another factor. About half the company’s sales are overseas, and those customers wanted to buy CaliBowls that were actually made in California. “Our customers in Korea, Canada and even China wanted U.S.-made products,” says Stump. “The Made-in-America brand has real value overseas.”

Manufacturing domestically also made sense for the green-friendly image of the CaliBowl itself. (The bowls are made from 100% recycled polypropelene and are packaged using 100% recycled materials). Add in the founders’ belief that they could make a small, but meaningful, impact on the U.S. economy, and the decision was made.

Shifting to a manufacturer in Northern California and packaging company in Sacramento did have a financial impact. Stump estimates that profit margins dipped by about 5% to 10%. But he says the company has benefitted enormously in other ways.

“Yes, there were some concerns initially,” he says. “But we’re a small business growing into a medium-sized business. In order to execute, we knew we had to do this.” Since making the switch, sales have gone up steadily month to month. “So far, we’ve created a total 15 jobs in the U.S. just in manufacturing, and we expect to add a few more each month,” says Stump. “That’s in addition to jobs at the packaging company, jobs for drivers to deliver the product — it’s a domino effect.”

From a marketing standpoint, the move to the U.S. has clearly paid off. “We’ve gotten a lot of attention,” says Stump. “We’ve had offers from chefs who want to work with us. We can hardly keep up with the opportunities that are being offered.”

Companies that follow Simple Wave’s example will most likely benefit from similar public goodwill. For help in assessing whether it makes sense to reshore, the Web site of the non-profit Reshoring Initiative has a number of useful resources. The Total Cost of Ownership Estimator, for example, allows companies to make sourcing decisions based on factors beyond price alone.

For now, the reshoring movement is just getting going. But success stories like the CaliBowl have shown that there is strong demand for consumer products made in America — and not just from Americans.